What happens when separate assets are commingled with marital property or labor prior to the date of separation or a divorce in Louisville? Here in Kentucky, when a spouse has money or assets prior to the date of the marriage (or after the date of separation) these are usually considered to be the “separate property” of that spouse, outside of the “marital property” to be divided equitably during a divorce. This is also true for any income or increase in value associated with these assets, as well as any properly structured inheritances received during the term of the marriage. In essence, the money or asset must be kept completely separate from any marital funds, labor or assets in order to remain “separate.”
However, if the asset or funds are used to purchase a marital asset, or if marital funds or labor are used to repair, maintain, or increase the value of an otherwise separate asset, it may become “commingled.” What are the best steps one can take to keep separate assets from being commingled with marital assets?
Let’s presume one of the spouses owned a house prior to the marriage. If that spouse keeps the house as rental property, the rental income and the house itself remain the separate property of that owner. There should be a separate financial account in the property owner’s name to deposit rent and withdraw funds for taxes, insurance, and necessary repairs. As long as the spouse doesn’t provide any labor (such as helping to repair or paint the rental property) and marital funds are not used to pay for maintenance, repairs, or other expenses on the property, it will remain a “separate” asset.
If marital funds were used to pay even a single mortgage payment, taxes, insurance, or provide repairs for the “separate” asset of one spouse, the marital property settlement would need to reflect reimbursement from the “separate” asset for these costs, as well as associated appreciation on the property prior to division of marital assets.
However, if the spouse who owned that house sold it and contributed the proceeds to help purchase the marital home, the funds from that otherwise “separate” property become commingled with the marital asset (the home) as well as any marital funds used to pay the mortgage, make repairs, pay property taxes or provide insurance. What part of the value of the marital home is truly the “separate” property of the spouse who sold the house and contributed part or all of those proceeds? When separate assets are commingled with marital property or marital funds are used to support a “separate” asset, the “commingled” result must be accounted for and managed prior to marital property division.
In another common example, one of the spouses has a retirement account prior to the marriage. If that spouse were to borrow against that “separate” retirement asset for a marital purpose (such as buying a home or vehicle), that “separate” money has been commingled with the value of the marital home or vehicle. It may be necessary to establish not only the actual amount withdrawn from the retirement account but the amount of appreciation associated with that investment had it been kept “separate” in the retirement account. It is common for the resulting figure to be repaid from “marital” funds to the “separate” retirement fund prior to marital property division. Imagine how complicated these calculations can become when marital funds are contributed during the course of the marriage to a previously “separate” retirement account.
When separate assets are commingled with marital property or marital funds are used to support a “separate” asset, the “commingled” result during a divorce can become quite legally and financially complex. This is why it is so important to work with the experienced Louisville divorce, tax, and family law attorneys at Dodd & Dodd. We have represented Louisville area clients before our local Family Court for decades. We work to protect our clients’ property, goals, and objectives.
If you are concerned about what happens when separate assets are commingled with marital property we invite you to review the strong recommendations of our former clients and the legal industry and contact Dodd & Dodd or call 502-584-1108 to schedule an appointment with one of our attorneys.
